Special panel to take up Xiaomi’s case first for domestic sourcing relief

Up to 49% FDI is allowed through the automatic route and above that with the approval of the Foreign Investment Promotion Board.Ruchika Chitravanshi | ET Bureau | April 27, 2016, 07:16 IST

A special panel set up by the government will soon take a call on whether Chinese smartphone maker Xiaomi’s proposal meets the “cutting edge technology” condition for it to be allowed to set up stores in India without mandatory domestic sourcing.

As per the revised foreign direct investment norms announced by India last year, companies which bring cutting edge and state-of-the-art technology to the country can open single-brand outlets without 30% compulsory sourcing of materials locally subject to government approval.

In its application filed earlier this month for single-brand retail under the state-of-the-art category, China’s leading smartphone maker Xiaomi sought permission to forego the 30% sourcing norm for a range of its products including Wi-Fi amplifiers, Bluetooth speakers and power banks.

The three-member special panel formed by government to define cutting edge technology for the purpose of relaxation of sourcing norms in single-brand retail will now consider all such proposals submitted under this category on a case to case basis.

“Any technology which has never been made before in India and cannot be replicated is worthy of being considered under the cutting edge definition,” a senior government official said, requesting not to be named.

The panel comprises the secretary of the Department of Industrial Policy and Promotion (DIPP), member of the NITI Aayog and representative of the administrative ministries including telecom and information technology.

Besides Xiaomi, US-based Apple has applied for a licence for single brand retail and sought exemption from sourcing norm to bring state of-the-art technology to India. Apple’s application is being considered for approval by the government and has been forwarded by DIPP to the finance department. The company currently sells its products in India through a network of franchisee-owned stores.

The government allowed 100% FDI in single-brand retail in January 2012. Up to 49% FDI is allowed through the automatic route and above that with the approval of the Foreign Investment Promotion Board. Beyond 51% FDI, it is required that 30% of the value of goods be sourced from India, preferably from micro, small and medium enterprises, village and cottage industries, artisans and craftsmen.

Besides, DIPP is reviewing the mandatory local sourcing requirement of 30% in single-brand retail, especially for companies which source globally from India.

DIPP has asked Swedish apparel brand H&M to make a presentation, detailing its overall sourcing from India for the global market after the company raised concerns over the sourcing norm for single brand retail. “We want to create more jobs in the country and for that we need to simplify rules instead of adding more conditions for companies to enter India,” the official said.

India scaled the highest mark of $51 billion in FDI between April 2015 and February this year. FDI equity inflow recorded a growth of 44% between June 2014 and February 2016, reaching $63.16 billion, from $43.87 billion in the previous 21-month period.